Cal-Maine Foods(CALM) - 2020 Q4 - Annual Report

Company Overview - The company is the largest producer and distributor of shell eggs in the U.S., with a mission focused on sustainability and high-quality products [15]. - The company has completed 22 acquisitions since 1989, enhancing its production capacity from 160 thousand to 7.5 million layers [19]. - The company operates an extensive distribution network across the southwestern, southeastern, mid-western, and mid-Atlantic regions of the U.S. [41]. - The company had 3,636 employees as of May 30, 2020, with 4.8% being part-time [57]. - The company expects to be controlled by the family of the late founder, which may affect corporate governance and influence over shareholder actions [102]. Financial Performance - For the fiscal year ended May 30, 2020, net sales were $1,351.6 million, a decrease of 0.8% from $1,361.2 million in the previous fiscal year [140]. - Gross profit for the fiscal year was $179.6 million, down from $222.9 million in the prior year, reflecting a significant decline [140]. - The company reported a net income attributable to Cal-Maine Foods, Inc. of $18.4 million for the fiscal year, compared to $54.2 million in the previous year, indicating a decrease of 66% [140]. - Total assets as of May 30, 2020, were $1,206.7 million, an increase from $1,156.3 million in the previous year [140]. - Total net sales for fiscal 2020 were $1,351.6 million, a slight increase from $1,361.2 million in fiscal 2019 [166]. - The effective tax rate for fiscal 2020 decreased to 8.6% from 22.5% in fiscal 2019, primarily due to the net operating loss carryback provisions under the CARES Act [190]. - Net income for fiscal 2020 was $18.4 million, or $0.38 per share, compared to $54.2 million, or $1.12 per share for fiscal 2019 [196]. Production and Sales - Approximately 87% of total shell eggs sold in fiscal 2020 were produced by the company, with 91% of that production coming from company-owned facilities [30]. - Total shell eggs sold amounted to 1,069.2 million dozens, up from 1,038.9 million dozens in the prior year [140]. - Conventional shell egg sales accounted for 62.9% of total shell egg revenue in fiscal 2020, up from 61.4% in fiscal 2019, with revenue increasing by $20.0 million [166]. - Specialty eggs accounted for 35.9% of revenue and 23.9% of volume sold in the latest fiscal year, indicating a growing market segment [40]. - Total dozens sold in fiscal 2020 were 1,069.2 million, an increase of 30.3 million dozen, or 2.9%, compared to 1,038.9 million sold in fiscal 2019 [160]. Costs and Expenses - Feed costs represented 55.4% of farm production costs, with annual feed requirements of 1.7 million tons, of which 1.6 million tons were manufactured in-house [28]. - Labor costs are a primary component of farm production costs, with approximately 74% of employees paid at hourly rates, making the company vulnerable to labor shortages and wage increases [100]. - Cost of sales for fiscal 2020 was $1,172.0 million, an increase of 3.0% from $1,138.3 million in fiscal 2019, driven by increased production volumes [173]. - Selling, general, and administrative expenses (SGA) were $178.2 million in fiscal 2020, a slight increase from $177.0 million in fiscal 2019 [180]. Market Dynamics - Shell egg prices are influenced by various factors, including consumer demand and the productivity of laying hens, leading to price volatility [25]. - The shell egg production industry is highly fragmented, with the ten largest producers owning approximately 54% of total industry layers, up from 50% in 2015 [49]. - The company faces intense competition in the shell egg market, which could lead to price reductions and loss of market share, adversely affecting financial performance [97]. - Market prices for wholesale shell eggs are volatile, with fluctuations impacting revenues and profits significantly [63]. Strategic Initiatives - The company plans to expand cage-free shell egg production capabilities in response to growing customer demand and legal requirements [151]. - The company is enhancing its focus on cage-free capacity when considering acquisition opportunities due to uncertainties in future demand [76]. - The company plans to pursue a growth strategy that includes selective acquisitions to expand cage-free shell egg production capabilities in key markets [81]. - The company has invested significantly in cage-free facilities to meet customer demand and comply with evolving legal requirements [37]. Risks and Challenges - Agricultural risks, including outbreaks of avian disease, could materially affect the quality and quantity of shell eggs produced, impacting financial results [95]. - The company is subject to various federal, state, and local regulations, which could increase operational costs and impact financial condition if compliance is not met [90]. - Future acquisitions may require significant capital resources and could divert management's attention from existing operations, posing integration risks [82]. - The company does not maintain insurance for product recalls, which could lead to significant financial losses and damage to reputation if contamination occurs [94]. Investments and Assets - The company invested over $371.7 million in facilities and equipment to expand cage-free production since 2008 [204]. - As of May 30, 2020, the company owned approximately 28.4 thousand acres of land with no material encumbrances [123]. - Working capital at May 30, 2020, was $429.1 million, down from $492.8 million at June 1, 2019, with a current ratio of 5.6 [198]. - The company retired all outstanding long-term debt, resulting in no long-term debt as of May 30, 2020, compared to $1.5 million at June 1, 2019 [199].